Headline / July 2019

Regaining Focus and Reinventing the Future

The Bakrie Group, which has grown into one of Indonesia’s largest conglomerates since its establishment by Achmad Bakrie in 1942, reached a new milestone recently with the third generation of the family taking over the reins. By Muhamad Al Azhari Anindya Novyan Bakrie, better known as Anin, the first child of the family patriarch Aburizal Bakrie, one of Indonesia’s richest men, was appointed as chief executive and president director of Bakrie & Brothers in May. The 44-year-old scion replaced Bobby Gafur Umar, who had since 2002, served as the top executive of the group, often called BNBR in reference to its ticker symbol on the stock exchange.Despite ups and downs, the company has managed to retain its status as a prominent key player in the steel pipe manufacturing, autoparts, and infrastructure including construction, power, toll road, building material and metal industries. GlobeAsia had a telephonic interview with the new head of the Bakrie family’s holding company on June 30, while he was in the United States for business. “As the first building block, BNBR was established 77 years ago, before Indonesian independence, or more precisely, during the Japanese occupation. My late grandfather, a self-taught man Achmad Bakrie, started as a commodity vendor before founded the company, which was passed on to my dad and uncles,”Anin said. “In the late 80s, or in 1989, Bakrie & Brothers officially become the group’s flagship when it went public. We were among the first private groups in Indonesia at the time to go public. At one point, they also realized it was necessary to bring outside professionals in, thus Mr. Tanri Abeng was brought into the group. It was as if they always knew how to be steps ahead of other people, of other conglomerates,” he said. Tanri was an influential business figure at the time, also having served on former President Suharto’s economic advisory council. And as Indonesia’s first state-owned enterprise minister, he contributed much to the early success of the Bakrie Group’s businesses. That said, the Bakrie family has a long history of close, but healthy distance ties to the inner circle of the former strongman and those in authority. Considering its history, the Bakrie Group is monumental for the family, as it became one of, if not the first to complete restructuring and survived the Asian financial crisis that struck the nation in 1997-98. However, the group did not escape unscathed, as it defaulted on its debts and had to restructure $1.2 billion in debt, some of which was converted to equity for creditors in 2001. Refocusing the Business Under the third generation’s leadership, the group is now undertaking another major transformation to refocus its businesses, embrace the Fourth Industrial Revolution and improve its financial performance.“Summarizing the 77-year of the Bakrie’s journey, my grandfather laid down the foundation by innovating and founded the first building block. My father and uncles, who respectively graduated from Indonesia’s top engineering school and a top business school in the US, expanded strategically through the combination of their local, technical and business knowledge in the various businesses they acquired. As the third generation, mine is to increase values of the group by elevating from resilience during crisis to being excellent in this Industry 4.0 era,” Anin said. Anin, who was educated abroad, received extensive grooming for the job, which saw him serve in various executive positions at several companies controlled by the group. He has also played an active role in several influential business lobbies, so he is not a new face in the Bakrie Group. He also acts as the Vice Chairman of the Indonesian Chamber of Commerce and Industry (KADIN Indonesia), a position he has been entrusted for over 11 years. “This [appointment] is a huge responsibility, but also a good opportunity to modernize BNBR and the group,”said Anin, who despite his relatively young age is a veteran in restructuring, reorganization and business turn around with experience in over $4 billion financial transactions from merger and acquisition, fund raising to restructuring. Fundamental Performance Anin, an avid learner who earned an M.B.A. from Stanford Graduate School of Business in California in 2001 and is currently taking EMBA at Beijing’s Tsinghua University with a focus on China’s One Belt One Road initiative, can take a huge load off his mind when it comes to the groups’ performance this year. After being influential in building relationships with strategic partners in the manufacturing and infrastructure sectors, he became president commissioner at the company in the first quarter of 2018 with focus on the group’s capital structure. The Bakrie Group has posted positive equity since 2018, which Anin said is an achievement after booking negative equity in the preceding year. Net equity amounted to Rp2.68 trillion ($185.0 million) for the 2018 fiscal year and Rp2.72 trillion in the first quarter of this year. The company booked Rp39.48 billion in net income in January-March 2019, against a Rp332.96 billion loss in the corresponding period last year. Earnings before interest, taxes, depreciation and amortization meanwhile more than doubled to Rp120 billion. The group has restructured Rp9.55 trillion of its debts through a pre-emptive rights issue last year, which saw the debt converted into equity. It is also working on restructuring another Rp8.23 trillion in debt this year.This staggering debt load has been hampering the company’s operations, as scheduled repayments place a huge burden on its cash flow. Analysts believe a good turnaround in operational performance can be expected from the company’s strong efforts to fully focus on investing and improving performance in its manufacturing and infrastructure businesses, coupled with successful debt restructuring, which will contribute to positive financial performance. Seen as an instrumental entrepreneur in the Technology, Media and Telecommunications (TMT) sector, which in Indonesia is largely competitive and full of innovation, Anin who started his first 20 years of career around TMT businesses explained his aspirations to develop the group. “After improving our fundamental performance, it is now the time for us to push for the inclusion of value-added projects in the group’s business model. Human resources reinventing, organization culture shift, operational excellence and asset public listing, these will be my focus,” Anin said. According to various equity reports, the group’s performance will be directly linked to operational performance in its three manufacturing arms, Bakrie Metal Industries, Bakrie Autoparts and Bakrie Building Industries. Bakrie Metal manufactures steel pipe and offers engineering, procurement and construction services to clients engaged in steel-pipe installation. Bakrie Autoparts supplies automotive components, while Bakrie Building produces building materials. Ups & Downs The Jakarta-headquartered group used to stretch its muscles into more sectors. Aided by a boom in commodities, which saw a sharp rise in the prices of foodstuffs, energy, metals, chemicals and more between 2000 and 2014, the company controlled a wide array of businesses in various sectors, ranging from basic industries, mining and minerals, oil and gas, property development, infrastructure, plantations and manufacturing, to media and telecommunications. However, a subsequent slump in global commodity prices hit Indonesia very hard, including commodity-based companies such as the forefront Bakrie Group, which, coupled with aggressive expansion, forced it to launch a massive debt restructuring scheme that saw it losing control of some of assets in its portfolio, including Bumi Resources, its previous crown jewel and Indonesia’s largest coal miner. However, the Bakrie family retains control of the coal miner and other of its strategic businesses, through private investment firm Long Haul Holdings Ltd. After the restructuring, other prize assets of the group were also owned by private holdings. Among the first conglomerate that went public, hired outside professional and pioneered many industries, it owns until today including agriculture, mining and manufacturing. The Bakrie Group’s story cannot be told without mentioning Anin’s father, Aburizal, who is also a prominent politician. The 72-year-old businessman is known for being highly intuitive in reading business situations as well as in making adjustments in accordance with changing government policies and domestic economic growth. Analysts cited he is among the first to bring in agriculture and mining industrialization together with the Japanese and is now heading towards his electrical vehicles and steel plants ambitions. Everything is not always positive though, as the combination of his political and business interests often draws criticism. Aburizal, previously the head of Golkar Party, the country’s oldest and largest party that time, served as coordinating economic affairs minister in the first cabinet then-President Susilo Bambang Yudhoyono formed in October 2004. A year later, he was redeployed as coordinating welfare minister, remaining in his post until the end of Yudhoyono’s first term in 2009. The companies under the Bakrie family’s control, known as “the Bakrie Nine” (Bakrie & Brothers, Bumi Resources, Bumi Resources Minerals, Bakrie Telecom, Darma Henwa, Bakrieland Development, Energi Mega Persada, Bakrie Sumatera Plantation and Capitalinc Investment), enjoyed their highest market valuation in 2010 and 2011, before falling victim to over-leverage, suffering heavy losses and being burdened by massive debt. The group also has a history of disputes with minority shareholders, creditors and partners, including Nathaniel Rothschild, a member of the Rothschild dynasty, a well-established conglomerate with a strong grip on the commercial sector in Europe and North America. Then there was also a tax issue related toBumi Resources that led to disputes between Aburizal and Sri Mulyani Indrawati, in her first stint as finance minister in President Yudhoyono’s cabinet. Often regarded as one of Indonesia’s most forward-looking groups, the Bakrie group back in the 1990s had once acquired 10 percent of Freeport Indonesia “Grasberg” mine–the world’s largest gold mine and the second largest copper mine. Today, after more than 25 years, the government has just acquired 51 percent of Freeport. Some argued their bold and aggressive moves were necessary for Bakrie to become who they are today. Moving Forward Although Anin has to deal with the legacy of the debt problem,the Bakrie Group has been making strong efforts under his leadership to recover its reputation in the eyes of the financial community and broader stakeholders by implementing changes brought by Industry 4.0, strengthening its capital structure and placing greater focus on its core business in steel pipe manufacturing, engineering planning, construction and automotive components. Anin is the Indonesian Chairman of Asia-Pacific Economic Cooperation (APEC) Business Advisory Council (ABAC), where he was separately appointed by two different Presidents of the Republic of Indonesia. A strategic organization as it is the official vehicle established by APEC to formalize private sector participation in APEC, Anin has been extending ties to 21 APEC countries.Anin made efforts to further develop the group’s business interests and look for viable investments using existing businesses as platform and ecosystem. “Externally, the Bakrie Group has sought to become the proxy of Indonesia’s economy for investors. Internally, synergy within our group and going up the value chain of our businesses will be my next focuses. Equipping our businesses and assets with technology, that’s where we have been and will continue heading.We want to be better, faster and cheaper. We need to be ready for Industry 4.0.”Anin said. “Businesses can improve their value chain systems through information technology. The world is now talking about smart technology, machine learning, quantum computing and artificial intelligence. How can we adopt those advanced developments in businesses?” he said. About the Bakrie Group’s main businesses, Anin said the company was poised to benefit from Indonesia’s steady economic growth and accelerated infrastructure development. He said that while in the past, the resources sector had been a significant contributor to growth, Indonesia will need a better connectivity as the economy becomes more advanced. He said the government’s commitment to accelerate infrastructure development is not only good for the Bakrie Group, but also a promising step toward making the country more competitive. “With my engineering background from Northwestern University, I have been fortunate to practice TMT early, and these 20 years of experience has familiarized me with the so-called speed, innovation and disruption. These two keys combined will be among my strongest assets in designing and going up the value chain of the Bakrie group’s basic industries,” Anin said. Anin, often regarded the crown prince of the Bakrie family’s business empire since embarking on his career, had to go a long way before reached his current position. His career started right after completion of his studies, when he became a financial analyst at Solomon Brothers Inc. in New York in 1996. He has played an active role in several business organization while building his career, including the Asia-Pacific Media Forum, Indonesian Young Entrepreneurs Association (Hipmi) and Indonesian Chamber of Commerce and Industry (KADIN Indonesia), as permanent chairman of the telecommunications sector. As co-chair of the Asia-Pacific Economic Cooperation Business Advisory Council’s digital innovation working group since March 2011,he regularly writes about economics and politics in Southeast Asia for various national and international publications such as Jakarta Post and Wall Street Journal. Anin,an early-starter and experienced Indonesian media and digital investor, said he believes information technology bring benefits to Indonesia. He is the founder of the Bakrie Group’s media empire that now controls 20% of the Indonesian free-to-air market share. Among others, it owns #1 news/sports tvOne, national top entertainment channel ANTV, and Indonesian top online portal viva.co.id.He also supported Convergence Ventures, a leading homegrown early-stage technology venture fund. He became president commissioner of tvOne in 2007 (then known as PT LativiKarya) and president director of PT Visi Media Asia in 2008. His involvement saw tvOne become one of Indonesia’s top channels for news and sports, while ANTV became a popular entertainment channel. The group’s online news portal,Viva.co.id, is also one of the country’s main websites for news and entertainment. While the Bakrie Group’s focus is shifting to managing its core business, Anin is also developing a direct-to-costumer approach in its media interests. He said the group’s media business is growing steadily. “I am obsessed with intellectual property. They are the future and I have strong faith in the future. Typical big conglomerates are reluctant to adjust swiftly to the future. I like to watch and grow with the future,”Anin said. ANTV is meanwhile expanding into filmmaking, enlarging its internal production capacity. Anin believes the main reason for his appointment as chief executive was his experience in consumer-focused business models. Anin seems to be zealous in creating “Indonesian superheroes”. The darkhorses One Pride MMA and One Prix MotorSport he built, but now independently managed and embedded on tvOne, has seen the channel attract more interest. Yet his ambition does not seem to stop there. “Sport is something very, very close to the hearts of our 269 millions population and today we are the only major players on the fields. We hope Indonesia will soon see its first spectator-sport unicorns,” Anin said. “Everyone loves, and deep inside [everyone] aspires to become a hero. That is why superhero movies are always popular not just in Indonesia but everywhere else. By reaching and responding to this desire that exists within the deepest of all subconscious mind, not only will we bring out the greatest entertainment for the audience, but we will also encourage more Indonesian heroes to be born, may it be in sports or movies,” he said. Anin is concurrently co-leading the development of Indonesia’s own superhero cinematic universe through the largest library of the intellectual property rights he owns. He aims to replicate the global success of Marvel and DC Comics. The first movie in line, Gundala is set to premiere this August. Anin is currently reading Yuval Noah Harari’s “Sapiens: A Brief History of Humankind”.